Fibonacci is alive and well - in AUD:SGD

Observations show that the amount of a market move tends to follow a pattern of:

Move a lot

Retrace a bit

Move another lot - or retrace again

The amount of each move tends to follow Fibonacci retracement levels:

0.382

0.500

0.618

The market volatility over the last few weeks (due to the sub-prime mortgage debacle in the US) has surprised a lot of market watchers. The volatility has been felt by all types of markets, including forex (foreign exchange).

Let's look at an example which how Fibonacci retracement levels can be observed in the recent turmoil.

SGD-AUD and Fibonacci

Here is a chart of the Australian dollar against the Singapore dollar for the last 30 days (end July to early September 2007. Click to enlarge.)

Let's zoom in on the latter part of the chart to see what is happening.

The peak of 134.0 (point A - the pink line) was reached on 26th July and the trough (point B) was around 118.6 on 17th August. That's a huge 15.4c drop.

Now, 0.5 × 15.4 = 7.7c

Observe that the AUD:SGD rate retraced to 126.3 (point C) on the 27th August was right on the 0.500 Fibonacci retracement level